MySale Group plc (LON:MYSL) has released a reassuring pre-close trading update, with underlying EBITDA expected to be at least A$11.8m, ahead of our prior forecast of A$11.5m. FY18 sales growth is expected to be c.10% to A$295m, which whilst below our A$309m forecast (or 15% growth), has been of secondary importance to gross profit as per previous updates. The company’s strategic plan is delivering on various initiatives that are focused on achieving higher gross margins. We pull back our FY19 sales forecasts to reflect this change in mix, from A$339.9m to A$323.5m (FY19 10% growth assumption unchanged), however based on improved operational leverage being achieved we increase our EBITDA margin by 20bps to 4.7% which results in our FY19 EBITDA forecast moving from A$14.5m to A$14.7m. The shares are -30% over the past month, which looks unwarranted in our view given today’s solid trading update and confident outlook. More detail and an update on trading will be given at the full year results expected in early October 2018.
More sustainable model with focus on growing gross margin and profitability. Gross margins have been improved by the planned increase in own-buy inventory, as well as building out the group’s marketplace with new international and local strategic partnerships increasing the product range on a low risk, third party basis. Underlying EBITDA is increased c.36% as EBITDA margin improved. The business also continues to invest in the proprietary tech platform which will continue to drive efficiencies and improve operational gearing. There are now also over 1m SKUs now available online which should support future growth.
Zeus Overall view. MySale Group plc management are confident going into the new financial year as they continue to deliver improved operational performance and profitability. It remains our view that there is possible upside to come from new income streams including the retail marketplace. MySale is a business that generates substantial revenues that are currently valued on an FY19 EV/Sales multiple of just 0.5x, and EV/EBITDA of 10.2x.
